What is the Avalon
Shale?The Avalon Shale is a small oil & gas shale field
located in Eddy County, Lea County, and Chaves County New Mexico. According to Chesapeake Energy, the Avalon
Shale extends into Texas. This small shale play is making big news as several companies report outstanding well results.
The Avalon Shale is the same as the Leonard Shale, drilling companies use one of the two names when they refer to this area. The Avalon Shale is part of the 1st Bone
Spring Formation. The Bone Spring is made up of three different zones.

The Avalon Shale is an oil and natural gas field that is part of the Permian Basin. It lies above in the Bone Spring and above Wolfberry formation. The Avalon shale is primarily spread
across parts of Southern Eddy and Southwestern Lea counties in New Mexico. The Avalon is comprised of a series of individual
sandstone zones which are separated by carbonaceous and shaley siltstones ranging in depth from 6,500 to 9,000 feet.
The sandstone zones require artificial stimulation to produce oil and natural gas. (Paleohydrology of the Delaware
Basin, Western Texas: Overpressure Development, Hydrocarbon Migration, and Ore Genesis - AAPG Bulletin, July 1, 2000;
84(7): 961 - 974.
).

The
Avalon Shale is slowly becoming developed and should see a lot of drilling action in 2013/2014.

Chesapeake Energy Corp. (CHK) has drilled
more than 8 wells to date on their 120,000 net acres across Texas and New Mexico. They predict that each well can
produce 350 MBOE with an unrisked resource of 200 MMBOE. Chesapeake anticipates operating an average of roughly six
rigs in the Permian Basin unconventional liquid plays by the end of 2010 and plans to drill approximately 50 net wells.

EOG Resources Inc. (EOG)- In the New Mexico Leonard Shale (Avalon Shale), EOG reported continued drilling success on an additional
18,000 acres and, combined with previous reported success on 31,000 acres, has now proven up 49,000 of its 120,000 total net
acre position. The Elk Wallow 11 State #1H has been producing for over 30 days at an average rate of 337 Bopd with 3,070 Mcfd
of rich natural gas. The Elk Wallow 11 State #2H has been producing for 11 days at an average rate of 505 Bopd with 4,770
Mcfd of rich natural gas. EOG has 100 percent working interest in these Eddy County wells.

Anadarko Petroleum Corp. (APC) is currently testing Avalon shale to see if the formation is profitable: Anadarko exited
the quarter with four operated rigs and five non-operated rigs drilling in the Bone Spring horizontal play and one operated
rig and one non-operated rig drilling in the Avalon Shale. A total of 15 wells were spud during the quarter and 19 wells were
completed.

Devon Energy Corp (DVN) has
been building a position in the Avalon Shale play. Devon Energy (DVN) assembled over 230,000 perspective
net acres in this conensate and liquids-rich gas play. Although they are still in the early evaluation of the play,
initial drilling results indicate an attractive, repeatable play with outstanding economics. The best wells Devon Energy
has drilled to date, have IP-ed at over 500 barrels of condensate per day, 500 barrels of NGLs per day and 3 million to 5
million cubic feet per day of gas. Well costs in the play run between $3.3 million and $4 million. Devon expects
Avalon wells to have average IPs of 300 barrels of condensate per day, 300 barrels of NGLs per day and 2 million cubic feet
of gas per day in the heart of the play. They expect per-well recoveries to average over 600,000 barrels of oil equivalent.

"The Avalon is a separate play that we have a pretty significant acreage position out in the, really, spans
the border between Texas and New Mexico out of the Delaware Basin, of the Permian Basin. We've drilled a number of Avalon
wells. It appears that as you move across the Avalon from the west to the east, you find more oil, but in general, it's a
gas rich play. And we think there are some reasonable areas in the Avalon. But essentially, we have the acreage in the
Avalon that we desire held by production and it is primarily gas and so we're deemphasizing that this year in terms of activity
and emphasizing the more oil and liquids-rich areas.

Avalon Shale Map

Eddy County, Lea County - New Mexico

PetroHawk Energy (HK) - Petrohawk Energy (HK) was bought by BHP Billiton (BHP) last year. Petrohawk began building an acreage
position in the Permian Basin in the second half of 2010, and has now acquired or has committed to acquire approximately 325,000
net acres at an average cost of approximately $1,400/acre with over 90% expected to be operated.
The Company's core position includes acreage in the Midland Basin, where the primary target is the Lower Wolfcamp, and acreage
in the Delaware Basin, where the primary targets are the Lower Wolfcamp Shale, Bone Springs
Sands and Avalon Shale.

The Delaware Basin holds three objectives
- the Avalon Shale, Bone Springs Sands and the Wolfcamp Shale, in a gross interval of approximately 3,000 feet. These targets
are found at a vertical depth of between 5,000 and 12,000 feet across the basin. The Company expects a product mix of primarily
condensate and natural gas with significant NGL yield. Horizontal wells are forecasted to cost between $6.5
and $8.0 million.

Climarex Energy (XEC) believes
in the strong potential of the Avalon Shale. They have already seen excellent results their horizontal play in Eddy
and Lea counties, New Mexico. They drilled one horizontal well in the Avalon shale which they are still evaluating but
thus far, they are pleased with the results.

During the third quarter of 2012, the Company drilled or participated in 42 wells (22 operated) with a 100% success rate
on the 6 wells that had been completed by September 30, 2012. Of the 42 wells drilled, all were horizontal, which included
27 Bone Spring sand wells, 6 Avalon shale wells, 6 Wolfcamp shale wells and 3 Delaware sands wells. In addition, during the
third quarter of 2012, the Company completed 31 wells that were drilled prior to the third quarter of 2012. The Company's
net production in the third quarter of 2012 from horizontal Delaware Basin wells averaged approximately 16,000 barrels of
oil equivalent per day ("Boepd"), an increase of 15% over the second quarter of 2012 and an 80% increase over the
third quarter of 2011.